SA EXPATRIATES: GET READY FOR CHANGES IN 2020
Working abroad has proved a lucrative prospect for many South Africans, especially in countries where they don’t have to pay employment income tax. If they also qualify for exemption in SA, they effectively pay no tax on their foreign earnings. But all this will change on 1 March 2020, when amendments to the tax laws come into effect.
South African residents working abroad for more than 183 days during any 12-month period, which includes a continuous period exceeding 60 full days during that 12-month period, are currently not taxed in South Africa on their foreign employment income. This is because Section 10(1)(o)(ii) of the Income Tax Act 58 of 1962 (ITA) provides a specific exemption for this income.
Amendment from March 2020 and the effect thereof
With effect from 1 March 2020, Section 10(1)(o)(ii) has been amended to allow the first R1 million of foreign remuneration to be exempt from tax in SA if the person is outside the country for more than 183 days and for a continuous period of no longer than 60 days during a 12-month period.
The amendment will require that South African tax residents abroad will be required to pay South African tax on their marginal tax rate of up to 45% of their foreign employment income, where it exceeds the R1m threshold.
Taxpayers earning foreign remuneration and paying tax on that remuneration in the foreign country, will qualify for the Section 6quat(1) rebate, where that taxes paid will be deducted from South African taxable income.
The R1 million threshold is aimed at reducing the impact of the amendment for lower- to middle-class South African tax residents earning an income in foreign countries. The effect of this exemption will also be that South African tax residents in high income tax countries are unlikely to be required to pay additional top-up payments to the South Africa Revenue Service (SARS).
The exemption only applies to remuneration for services rendered.
Implications of the amendment for tax expats
As a result of this amendment, all South African tax residents working abroad will be subject to tax in SA on all foreign employment income earned exceeding R1 million. However, if tax has been paid on these earnings in the foreign host country, they’ll be able to claim this as a credit in SA, limited to the amount of local tax payable on the foreign earnings.
Pensions and annuities – Section 10(1)(gC) exemption
Any lump sum, pension or annuity received by or accrued to a South African resident from a source outside South Africa as compensation for past employment outside the Republic, is exempt from tax in South Africa.
Since the amendment will only be effective from 1 March 2020, Treasury has granted taxpayers enough time to adjust their contracts or circumstances.
If you have any queries regarding the above or any other tax related queries, contact Joleen at (012) 991 4400 or joleen@cmv.co.za.
This article is a general information sheet and should not be used or relied upon as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your financial adviser for specific and detailed advice. Errors and omissions excepted (E&OE)